A Pentagon task force is proposing the largest overhaul of the military retirement system in 50 years that will do away with a traditional pension system, opting instead for a 401(k)-style contribution program.
Under the newly proposed Defense Business Board plan, all troops would receive yearly retirement contributions if they served at least 20 years -- a stipulation of the existing system. The money, however, would not vest until service reached at least three to five years and would then be payable at retirement age. If personnel left before that three- to five-year mark, the time served would be rolled over into Social Security.
The central feature of the new DBB proposal would be a mandatory “Uniformed Military Personnel Thrift Savings Plan (TSP)” in which the contributions by the Department of Defense and the individual service member would be deposited. There is already a TSP program in operation, established by Congress in 1986 for both federal employees and service personnel. But those TSPs are voluntary and only include employee contributions.
The new TSPs -- functioning as a 401(k)-style account -- could include a government contribution amounting to as much as 16.5 percent of the member’s annual pay, as well as a maximum annual tax-deferred contribution limit of $16,500 by members. In addition, there is a $5,500 annual tax-deferred “Catch-up Contribution” for service people age 50 or older, and adjustments for those serving in a combat zone. The proposed DBB retirement program would not impact disabled veterans or current retirees.
Under the existing Defense Department pension system, personnel with at least 20 years of active service can retire with a lifetime annuity of 50 percent of their highest average salary from their last 36 months of employment. According to the DBB, the new TSPs would function much like the current voluntary TSPs for federal employees.
